UK's car finance market on the brink of crisis as pivotal court decision looms
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The UK's car finance market is on the brink of a crisis as a pivotal court decision could result in lenders facing a £30bn compensation bill for potential mis-selling of loans, causing a major shock to the industry. Experts have suggested that potentially millions of motorists could be eligible for a payout if the Supreme Court upholds a landmark ruling on hidden motor finance commission arrangements next year. The judgment, made by the Court of Appeal in October, deemed it unlawful for car dealers to receive commission from lenders without the customer's fully informed consent.
This means customers should have been clearly informed about the commission dealers would earn and agreed to it. This ruling has opened the door to a potential surge of complaints from motorists who believe they may have been mis-sold car finance in previous years.
As the industry awaits the Supreme Court's decision to uphold or overturn the judgment, the Financial Conduct Authority (FCA) is separately investigating whether there was widespread misconduct in the motor finance market and how affected consumers should be compensated.
Benjamin Toms, a banking analyst for RBC Capital Markets, stated that if the court ruling is upheld, depending on the specific judgment, there could be more complaints brought to court. The FCA, in a stark warning to the Supreme Court, has revealed that nearly 99% of approximately 32 million car finance agreements from 2007 to 2021 involved broker commissions. "What they’re saying, without being explicit, is if you make the wrong decision in this case, that’s a lot of court cases you’re going to have to hear," commented Mr Toms.
